AMD warns of Q3 sales shortfall

SAN FRANCISCO—Advanced Micro Devices Inc. (AMD) Thursday (Oct. 11) warned that its third quarter sales were lower than previously expected due to weaker demand across all product lines caused by macroeconomic difficulties.

AMD (Sunnyvale, Calif.) said preliminary results show that the company's revenue declined about 10 percent sequentially to $1.27 billion in the third quarter, which closed Sept. 29. AMD had previously said it expected sales to be between and $1.38 billion and $1.4 billion, a range of 1 percent to down 3 percent sequentially.

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""The PC end market appears weakest due to soft global demand and share loss to tablets," said Christopher Danely, an analyst with JP Morgan, in a report circulated late Thursday. "Looking ahead to 4Q12, we do not expect Windows 8 to be a catalyst as new operating systems have not driven a major upgrade cycle since 1995."

AMD said it now expects its gross margin for the quarter to decline to about 31 percent, less than the previous estimate of 44 percent. AMD said it cut its gross margin estimate due to a $100 million inventory write-down for lower anticipated demand for certain products.

Third quarter gross margin was also negatively impacted by weaker-than-expected demand, which contributed to lower average selling prices for the company’s processors and lower utilization of AMD's back-end manufacturing facilities, the company said.

"We believe AMD lowered prices to clear inventory as its inventory was 98 days in 2Q12, well above its five-year average of 64 days," Danely said.

AMD said its third quarter operating expenses are expected to decline about 7 percent from the second quarter as a result of tight expense controls. The company is expected to report its full third quarter results on Oct. 18.